1. Describe, in your own words, the Laspeyres Index, the Paasche Index, and the Fisher Index (chain-weighting).
2. Consider a country that only produces cars, cantaloupes, and
catamarans. Complete the following table by filling in the missing
entries.
3. Calculate the inflation rate for the 2014-15 period using the GDP deflator based on the Laspeyres Index, the Paasche Index, and the Fisher (chain-weighted) Index.
Homework Answers
Table 1
| Quantity | Price | Percentage Change | ||||
| Items | 2014 | 2015 | 2014 | 2015 | Price | Quantity |
| Car | 100 | 125 | 4000 | 4050 | 25.0% | 1.3% |
| Cantaloup | 5000 | 4650 | 65 | 80 | -7.0% | 23.1% |
| catamaran | 450 | 600 | 900 | 1000 | 33.3% | 11.1% |
| Real GDP in 2014 prices | 1130000 | 1255000 | ||||
| Real GDP in 2015 prices | 1342250 | 1478250 | ||||
| Real GDP in chained prices (benchmark=2015) | 1249736.12 | 1478250 | ||||
3.
The three indexes using the formula above is calculated below
| 2014 | 2015 | |
| L Index | 100 | 101.25 |
| P Index | 100 | 117.79 |
| F Index | 100 | 109.21 |
Inflation using GDP deflator between 2014 and 2015 is calculated as the percentage change in CPI. As 2014 is the base year assumed, the inflation is only the difference between two-year indexes.
| 2014 | 2015 | Inflation | |
| L Index | 100 | 101.25 | 1.3 |
| P Index | 100 | 117.79 | 17.8 |
| F Index | 100 | 109.21 | 9.2 |
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